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IPOs don't have to be automated to end what is essentially price collusion by the investment banks on financing fees. It doesn't take that much more "work" by a
by tomkarlo 14y ago
IPOs don't have to be automated to end what is essentially price collusion by the investment banks on financing fees. It doesn't take that much more "work" by a bank to do an IPO for Facebook as it would for a company 1/50th the size. (I've worked on both size deals; the smaller ones are sometimes even worse because larger deals often have more seasoned professionals inside the issuer.) There are a lot of banks that would love to undercut the standard 5-7% IPO fee but they're afraid of being cut out of lots of other deals as punishment by the other banks.
Good for FB for questioning why banks still get 7% of new equity issues. It's highway robbery.
- creamyhorror 14y agoNice insight there, and it makes sense. I guess the question is, are there good reasons for banking services to be so expensive, besides the inherent power advantages that the players possess? And if I may be allowed to repeat a common trope, all that wealth easily buys or wins the political influence necessary to keep the market regulations highly favorable to them.
- tomkarlo 14y ago50 or 100 years ago, there was real risk inherent in being an equity underwriter. IPO underwriters purchase the equity from the issuer and resell it to the market, and in theory that creates material risk that they might not be able to resell it at a profit. These days, they've pre-sold the equity (usually several times over) to institutional investors before they do the deal, so the risk is pretty minimal. Just look at the average first-day pop (something like 20%?) on large IPOs and you can see how little risk they're taking.